Services
People
News and Events
Other
Blogs

How leaving a gift to charity in your Will can have tax benefits for your estate

View profile for Megan Ryan-Loughran
  • Posted
  • Author
Are homemade Wills a recipe for disaster?

The end quarter of the year always seems to be filled with a whole host of charitable efforts, and we at Stephensons love a good fundraising activity. There’s Go Sober for October in aid of Macmillan, Movember for the Movember Foundation, Children in Need, Save the Children’s Christmas Jumper Day, the Salvation Army’s Operation Christmas Child, to name but a few! Stephensons are proud to be supporting Macmillan Cancer Care throughout 2019 as our nominated charity of the year and our fundraising efforts can be found here.

It’s not just companies that get behind these initiatives either, there are thousands of people up and down the country doing their bit for charity. Some people may ‘Brave the Shave’ or take part in a one-off sponsored event, and for some the desire to contribute to charity is so great that they leave gifts of legacies in their Wills to a charity or charities of their choice.

It is possible to leave a gift of money to a charitable organisation in your Will or a person may have spent some time in a hospital ward and want to leave a gift to the hospital with an expression that it is spent on that ward, for example to be used to buy new machinery and equipment, and this is also possible.

Tax benefits

Leaving a gift to charity may also have tax benefits, as it is possible to reduce the amount of inheritance tax paid on the chargeable part of an estate, dependent on the amount gifted.

If you leave a specific gift to charity in your Will, this is not included when calculating the total chargeable estate. It is therefore a tax-free gift and no inheritance tax is payable.

If you leave your entire estate to charity, there will be no tax to pay on the estate.

If you leave 10% or more of your net estate to charity, this will reduce the amount of inheritance tax payable on your estate from 40% to 36%.

Example

John, a man who never married, has an estate worth £575,000. He has no children, and intends to leave everything to his sister, Laura.

Scenario one: nothing left to charity

Total estate: £575,000

Nil rate band: £325,000

Chargeable estate: £250,000

IHT payable at 40%: £100,000

Laura receives: £475,000

Scenario two: money left to charity

Total estate: £575,000

Gift to charity: £70,000

Subtotal: £505,000

Nil rate band: £325,000

Chargeable estate: £180,000

IHT payable at 36%: £64,800

Laura receives: £440,200

In Scenario one, the tax liability of the estate is £100,000 and Laura would receive £475,000.

In Scenario 2, the tax liability is £64,800, a saving of £35,200. Laura would receive £34,800 less in Scenario 2, however the charity benefiting would be £70,000 better off.

Tax planning is often far more complex than the above simplified example, and should not be attempted without having consulted a specialist. If you are considering making a Will and would like to leave a gift to a charity or charities close to your heart, our team of specialists in the probate department are able to discuss leaving charitable legacies in a Will, and the tax implications of doing so. Contact the team on 0175 321 6399.

Comments